California Small Business Owners Optimistic about 2003 Despite a Slow Economic Recovery; Survey Finds Only Half of Respondents Can Afford Health Benefits for Employees.

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--Feb. 25, 2003

Although the economic recovery continues to be delayed, 64 percent of California small business owners surveyed are expecting 2003 to be a more profitable year than 2002, according to a statewide survey released today by Union Bank of California, N.A.

Meanwhile, despite a time of skyrocketing health insurance premiums, only about half of the respondents (53 percent) said they currently offer their employees health coverage benefits. Of those, almost 40 percent have had to make changes to the benefits, including shifting a larger portion of the health costs to their workers, reducing the health benefits, or a combination of both. Recently, State Senate leader John Burton proposed a sweeping measure requiring that all California employers offer their workers health insurance or contribute to a fund that would cover the state's approximately 5 million working poor. The measure has drawn controversy, especially from the California Chamber of Commerce. The Chamber, which represents 16,000 employers, two-thirds of which consider themselves small businesses, has offered an alternative plan.

"As a group, small businesses account for roughly half of the employment in the state, and continue to be a vital force in the state economy, having generated most of the new business formations and employment growth in recent years," said Richard C. Hartnack, Union Bank vice chairman. "This annual survey is an excellent tool to help us take the pulse of California's small business owners to determine their biggest concerns for 2003, both regionally and statewide."

Last month, Union Bank surveyed more than 900 small business owners statewide for their opinions on sales projections, hiring plans, health benefit costs and other financial and economic issues affecting them. For this survey, small businesses were defined as California companies with annual sales under $5 million for the fiscal year 2002.

"The results of the survey indicate the respondents are confident in the economy's recovery, and in their own financial performance," said Keitaro Matsuda, Union Bank's senior economist. "However, the rising cost of health care is beginning to affect them, and they are becoming concerned that policy changes, such as higher taxes and government regulations, will have a negative impact on their businesses. In fact, some of the business owners are concerned about being forced to move to another state if the cost of doing business continues to increase in California."

Despite their concerns, many business owners remained optimistic and reported good news in the survey. A majority of respondents (52 percent) had greater sales in the fourth quarter of 2002, as compared to the same time period of 2001. Only 22 percent of those surveyed said they had lower sales over 2001. However, although most businesses are forecasting a more profitable year, the majority (58 percent) are planning to keep their current staffing levels. About 38 percent are planning to increase their staffing, and only 4 percent are predicting a lower staffing level. Finally, only about 5 percent of businesses predict lowering their staffing level in 2003. About 12 percent reported having to lay off workers in 2002.

Aside from health care coverage, the biggest concerns on the minds of small business owners include the economy, cash flow, increased taxes and worker's compensation insurance, as well as state and federal regulations on businesses.

Other results from the survey show that nearly 60 percent of the respondents do not have any capital expenditure plans for 2003. Of the 40 percent who said they do have capital expenditure plans, about 72 percent expect their plans for 2003 to be larger than what was spent in 2002. About 32 percent of respondents own the real estate on which their business resides, and 81 percent plan to maintain their businesses' current square footage, with 18 percent planning to increase.

Survey Methodology

From the period January 2 to January 31, 2003, Union Bank of California's small business division held personal interviews with 901 small business owners. For more details regarding the survey, please call the contacts listed below.

About Union Bank of California

Based in San Francisco, UnionBanCal Corporation (NYSE:UB) is a bank holding company with assets of $40.2 billion at December 31, 2002. Its primary subsidiary is Union Bank of California, N.A., the third largest commercial bank in California. Union Bank of California, N.A., has 259 banking offices in California, 6 banking offices in Oregon and Washington and 18 international facilities. The company's Web site is located at www.uboc.com.

NOTE TO EDITORS: Regional small business owners are available for comment and interviews upon request.